Baldie559

Can someone explain the Trade-In process to me? This is how view the trade-in process. I wanted to purchase a $20K car. My trade-in is valued at $14K but I still have abotu $16K left on the loan. If the dealer takes $12K for the trade in that leaves me with $4K of negative equity. So $20K - $12K brings me to $8k. Now add $4K (neg equity) to the $8K and I get $12K. Now is $12K the amount that will get financed? Do I have the trade-in process correct?

qldit

Good Morning Baldie559, I would suggest you have accurately described the trade-in process.
Actually purchasing vehicles on the "glad and sorry" (glad you have it, and sorry you have to pay so much) basis is really feeding the loan companies.

I normally suggest using a vehicle until it cannot be economically repaired using minimal sensible maintenance costs as the way to go and purchasing replacement vehicles for cash.

The debt trap is terribly unforgiving because it commonly happens where depreciation on newer vehicles outstrips their value.
This effect tapers off with older vehicles, but dealerships always win financially because of their sliding manipulation of values.

Vehicle financing and insurances add to the predicament, especially if the machine is regularly serviced by the dealerships.

For the best economic motoring, yet still maintaining touch with modern vehicles, the way to go here in Australia is to purchase decent proven reliable vehicles in the 2 year old bracket, especially from government type auctions with proven title, this negates the steep depreciation affect but still allows you to have a near new reliable machine and help to avoid the negative equity circumstance.
But this is cash on the hammer fall.

It is very disconcerting to find your machine is worth substantially less than money owing on it.

Many dealerships offer artificially inflated trade-in quotes or alter real value mark-ups on replacement machines that also include a string of other inflated costs which are in the interest of the finance companies and included in that financing, so the whole thing is geared against a common motorist to produce an ongoing negative equity situation.
As a basic rule of thumb anything borrowed often costs at least twice as much.

My commisserations.

Cheers, qldit.

jaggerwild

Hey Baldie559,
If this be the case then, only give him 18 if he wants 20. Till they get you to sign the line you have them, wonce you sign the line then they have you.
As Qldit stated it's nice to have a new car, and all. But then the payments hit you and the newness wears off and your stuck with an even bigger loan than before.
Sounds correct about the 12 thousand but not certain. He will pay off your old loan is the way i always thought about it, but If hes not giving you the full value then why do it, makes no sense?

Baldie559

Yeah your both right. When it comes to the actual process I might miss a step or blind side myself and not catch it and end up being in a worse situation than I already am. Its not that I'm struggling to make payments but the fact, if I keep doing what I'm doing, I'll have it paid off by 2012 and probably have racked up 120k miles. My 100k warranty ends on 3/09 or 100k miles. I was thinking if I do a trade in I'll be able to get a slightly new car with less miles and possibly a better loan BUT I think thats asking to much. I may only get one of those especially with my credit not perfect at this point.

These dealers talk alot of BS anyway and they say anythign to get a sale. And I'm prone to hearing good deals and going for it and wondering what I got myself into later. Thanks for the responses guys.

RAF1

In reference to your question on trade in,take your trade in at 12000 off of the sticker of 20000 and then add back the 16000 you owe on the trade in and the figure you will have to finance will be 24000.00. Remember that the amount you owe on the trade in will not just GO AWAY. l spent 35 years in the car business financing vehicles and that is how it works.
My suggestion frankly is to keep your trade in and pay it down more until at least you have an equity.

Baldie559

YOu make a great point and you explained it very clearly. I think keeping it would be the best way. Just out of curiousity what if I chose to go with a car valued at less then the blue book?

RAF1

If you chose to go with a car valued at less than the blue book, you would still owe more on the new vehicle than it is worth---#1 the blue book is just a guide and #2 if it is worth less than blue book today chances are that it will always be worth less than blue book.
Why must you trade vehicles at this time rather than paying your present loan down a bit or paying on it til it's paid off. I realize the bit about putting miles on the present vehicle but you're going to do the same thing on a different vehicle as well. The only way to get anywhere in this world is to use credit sparingly and save save save (even though it is hard to do when one sees the pretty automobile, boat, suit, stereo etc (take your pick). To give you an idea of what I am talking about, I still drive a 1995 Taurus that I bought in 1995 (used) and will probably continue driving this vehicle for a long time even though I could easily pay cash for a different one.

Baldie559

Yeah I know. I just don't want this car breaking down on me before I pay it off. But its just something I'm gonna have to do and make sure I take care of the car. At this point trading it in might put more turmoil on my credit which I'm trying to clear up. Thanks for the advice RAF1.

RAF1

YOUR WELCOME and remember that it will be tough to save and not trade vehicles but think of the enjoyment of being able to get out of debt and owning an auto outright or at least having much smaller payments when you do trade.
RAF1